The stock market is not a physical place to visit. But, it is a trading of shares mostly online, representing partial ownership of companies. It is not merely where businesses would increase the capital, but used as a sign of the economy’s condition. The stocks’ price changes according to the following factors:
- supply and demand
- company’s performance
- economic conditions
People buy stocks for many reasons. Some hold stocks, seeking income from dividends. The others may think a stock rises, so they are snapping up, trying to purchase low and selling high. Market share is the percentage of the total sales in an industry made by a company. A market share is calculated by dividing a company’s sales over the period by the total shares of an industry over the same period.
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Types of the share markets
Stock markets are further classified into two parts, namely:
- Primary markets. When a company registers for the first time at the stock exchange to raise funds through shares, it enters the primary market. It is called an IPO (Initial Public Offering), after a company becomes publicly registered and the shares can be traded with market participants.
- Secondary markets. Once the company’s new securities have been sold in a primary market, they will be traded in the secondary stock market. The investors here get the opportunity to buy and sell the shares at the prevailing market prices. Investors conduct the transactions through the broker or intermediary facilitating this process.
What can you trade in the share market?
Four categories of financial instruments are traded on the stock exchange, which includes:
- Shares. A share will represent a unit of equity ownership in the company and the shareholders are entitled to any profits in dividends and would bear any losses the company is facing. Many investors may manage the shares through the share trading app.
- Bonds. Undertaking long-term and profitable projects, the company needs substantial capital. Issue bonds to the public to raise capital. The bonds represent a loan taken by the company. Bondholders turned into creditors of the company and received timely interest payments through coupons. From the viewpoint of the bondholders, the bonds act as fixed-income instruments, where they acquire interest on their investment and their invested amount on the prescribed period.
- Mutual funds. Mutual funds are managed funds that pool the money of several investors and invest collective capital in various financial securities. You may find various financial instruments, such as:
○ Equity
○ Debt
○ Hybrid funds and more
- Derivatives. It is a security that derives the value from the underlying security. It can have many varieties, such as:
○ Bonds
- Currency
- Commodities and more
Buyers and sellers of derivatives have differing expectations of the cost.
Nowadays, investing in stocks is considered one of the best ways to generate long-term wealth.
